If I become tax resident in the U.S. and my only income is from trading futures (trader status as per IRS criteria), what rate of capital gains tax do I pay? I know there is also Net Investment Income Tax of 3.8% and I am aware of the 60/40 long-term/short-term gains rule. Which states do not have capital gains tax? Is it worthwhile to establish an LLC for tax reasons?
if you get a good tax guy you will never pay anything in taxes. definitely get a llc, p or ltd or consider a non-profit for the ultimate bill clinton setup. or be supportive of the stupid ass gov and give them more money to waste.
Filing taxes has never been easier in the U.S. thanks to the revised form. The government is helping you to keep things simple.
Nine states currently have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, there are some nuanced differences among these states: Seven states (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming) have completely no state income tax. New Hampshire currently taxes dividends and interest, but this tax will phase out completely in 2025. Washington levies a 7% capital gains tax on assets sold for a profit over $250,000, and also has a payroll tax of 58 cents per $100 for long-term care. It's important to note that while these states don't collect income tax, they often make up for lost revenue through other means such as higher sales taxes, property taxes, or other revenue-generating programs. Experts advise considering the entire tax picture and cost of living, not just the absence of income tax, when evaluating a potential move to these states.
If you become a tax resident in the U.S. and your only income is from trading futures (with trader status as per IRS criteria), your capital gains tax rate will be determined by the 60/40 rule, plus the Net Investment Income Tax (NIIT) of 3.8%. Here's a breakdown of how your futures trading income would be taxed: 60% of your gains will be taxed as long-term capital gains: The long-term capital gains tax rate is either 0%, 15%, or 20%, depending on your total taxable income. For most individual traders, the 15% rate will apply. 40% of your gains will be taxed as short-term capital gains: Short-term capital gains are taxed at your ordinary income tax rate. Net Investment Income Tax (NIIT): An additional 3.8% tax will apply to your net investment income if your modified adjusted gross income (MAGI) exceeds the threshold for your filing status. To calculate your effective tax rate: Multiply 60% of your gains by the applicable long-term capital gains rate (likely 15%). Multiply 40% of your gains by your ordinary income tax rate. Add the 3.8% NIIT to the total if your MAGI exceeds the threshold. For example, if you're in the 22% ordinary income tax bracket and the 15% long-term capital gains bracket: 60% of gains: 15% tax rate 40% of gains: 22% tax rate Plus 3.8% NIIT (if applicable) Your effective tax rate would be0.60 * 0.15) + (0.40 * 0.22) + 0.038 = 0.09 + 0.088 + 0.038 = 0.216 or 21.6% This example demonstrates that futures trading can offer tax advantages compared to trading stocks or ETFs, which are typically taxed at 100% short-term capital gains rates for active traders. Remember that tax laws can be complex and may change. It's advisable to consult with a tax professional for personalized advice based on your specific situation.
FYI (I haven't seen this mentioned), the Net Investment Income Tax applies only to the income above the threshold (not "to the total if your MAGI exceeds the threshold"). So if you are single, you are taxed on the amount above the $200k threshold. If you have investment income of $300k and no other income, your NIIT will be $3,800 ($100k * 3.8%). See more at https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax
So true. Arizona, by the way, has a flat tax of 2.5% income and 1.88% on LT capital gains (75% of the normal income tax rate). So for futures trading, it's a flat tax of 2.128%. Other taxes like sales and especially property taxes tend to be low.
You keep mentioning Trader Status, but you only want that for non-futures -- i.e., stock & stock options. More impt, all comments assume current tax laws. Both Federal Gov't & almost all states, will be looking for ways to increase revenues, which will likely include closing some current favorable tax treatments -- e.g., carried interest; favorable futures trading, etc. ,etc.
How do I determine my ordinary income tax rate so that I know which capital gains tax rate applies to me? I would have no other taxable income, only from trading futures. And how does my tax position and tax rate change if I trade through an LLC?
For a single taxpayer, the rates are: Tax rate on taxable income from . . . up to . . . 10% $0 $11,000 12% $11,001 $44,725 22% $44,726 $95,375 24% $95,376 $182,100 32% $182,101 $231,250 35% $231,251 $578,125 37% $578,126 And up Married filing jointly or qualifying surviving spouse Tax rate on taxable income from . . . up to . . . 10% $0 $22,000 12% $22,001 $89,450 22% $89,451 $190,750 24% $190,751 $364,200 32% $364,201 $462,500 35% $462,501 $693,750 37% $693,751 And up plus state tax of 5% in my state plus * 12.4% Social Security tax on net earnings up to $142,800 to IRS * 2.9% Medicare tax on all net earnings to IRS * 0.9% additional Medicare tax on net earnings over $200,000 (for individuals) or $250,000 (for married couples filing jointly) to IRS.